* S.Korea's 2016 LPG demand, imports hit record highs
* LPG demand recovers on jump in petrochemical consumption
* S.Korea's 2017 LPG imports to remain near record
* U.S. LPG exporters stand to benefit most
By Jane Chung and Henning Gloystein
SEOUL/SINGAPORE, Feb 17A shift in the use of
liquefied petroleum gas (LPG) to petrochemicals and away from
transport has pushed demand for the fuel to new records in South
Korea, after years of slumping consumption, a change which
mostly benefits U.S. suppliers.
South Korea mainly used LPG to power cars up to 2010, but
sales started to spiral down as drivers of commercial vehicles,
mostly taxis, began switching to other fuels such as diesel or
gasoline. That forced South Korea's major LPG distributors, SK
Gas and E1 Corp, to look to other
sectors to offset revenue loss.
Last year strong demand for consumer plastics began to
strengthen Asian petrochemical margins, and at the same time SK
Gas started up a plant using LPG as a feedstock.
As petrochemical consumption in South Korea began jumping,
and with LPG prices dropping to around 30 percent less than
naphtha, demand recovered, shooting to its highest ever.
Analysts are expecting to see much the same this year.
"We expect petrochemical consumption to support this year's
LPG demand to stay similar to that of last year," said Ong Han
Wee of energy consultancy FGE.
In 2016, LPG imports rose by almost a third compared to the
previous year, to a record 7 million tonnes, according to data
from the Korea National Oil Corp (KNOC), while total consumption
rose to a record 9.4 million tonnes.
That came as prices for LPG, a mixture of propane and butane
produced as a by-product of U.S. shale gas, undercut naphtha.
Both products can be broken down into the building blocks for
the plastics used in packaging, toys, cars and clothing.
The average import price of naphtha in 2016 was $44.09 a
barrel, whereas LPG cost $30.85 a barrel, KNOC data showed.
"As the largest single (LPG) exporting nation in the world,
the U.S. should get its proportionate share of the growth," said
Ted Young, chief financial officer at U.S. company Dorian LPG
, which is the world's second-biggest LPG shipper.
Between 2015 and 2016, South Korea's U.S. LPG imports more
than doubled to about 3.4 million tonnes, according to KNOC,
making up almost half its total LPG imports.
Last year around 4.3 million tonnes of South Korea's total
LPG consumption was used in the petrochemical and industrial
sectors, a jump of more than 70 percent from the previous year,
according to KNOC data.
South Korea's record LPG use accompanied a near doubling of
its petrochemical production to 3.3 million tonnes last year, up
87.8 percent from 2015.
Analysts expect South Korea's petrochemical production to
hold near that level this decade, although JBC Energy's David
Wech warned that use of LPG in the system likely "maxed last
(Reporting By Jane Chung in SEOUL and Henning Gloystein in
SINGAPORE; Editing by Tom Hogue)